Ted Siefer's City Hall: MDC loan to city restaurant cooks up heated debate

ON TUESDAY, the Board of Mayor and Aldermen engaged in a heated and heavy debate over the city's spending priorities. Oh yeah, and they also passed a final $300 million budget for the fiscal year that begins in a few weeks.

.The fiercer debate concerned a certain $35,100 loan to the trendy downtown restaurant XO On Elm from the Manchester Development Corporation, the quasi-public entity created more than 40 years ago to invest in the city's economic progress...As is often the case, Alderman-At-Large Joe Kelly Levasseur did his part to stoke the debate. "There is outrage in the city from business owners," he said. "They see this as a bailout."

The debate raised a couple of key questions: Should the MDC be in the business of helping out a restaurant that, based on a leaked chain of emails among its board members, was clearly facing some financial distress? And should the MDC even have to answer to the aldermen?..On the latter score, Sean Owen, the vice chairman of the MDC board, suggested that the aldermen shouldn't give the organization, made up of successful business owners and professionals who volunteer their time, too hard a time..."If you look at the bylaws, we're not required to come before the board," he said. "We've always done so as a courtesy."

However, according to documents on file at the Secretary of State's Office and the IRS, "the making of any loans by the Corporation" does require the "prior approval" of the sole member of the Manchester Development Corporation, which is the City of Manchester, "acting through its governing body . the Board of Mayor and Aldermen."..The rules also state that the adoption of annual budgets and strategic plans must be approved by the city. Owen didn't respond to questions later in the week.

The point at Tuesday's meeting, however, seemed to be that, from its founding, the MDC was supposed to have a fair degree of autonomy. And the MDC can point to a spate of successful redevelopment projects over the years, such as the renovation of the Chase block, which now houses Margarita's restaurant...It also has $4.3 million in assets, including more than $2.3 million in cash and savings, according to its 2012 IRS form. It must be doing something right.

Most of the aldermen, by voting, 11-2, to support the loan on Tuesday, seemed to be inclined to support the MDC's judgment on the matter...As Alderman Jim Roy, Ward 4, put it, "This is $35,000 of their money. I think we've spent more time on this than our $300 million budget."

Mayor Ted Gatsas echoed the view that it was "their money." And he clearly was not pleased that the internal deliberations of the MDC board had become public, including one email that speculated that the mayor would "respond positively to the submission" of the loan..."I'm not sure that wasn't a private email and shouldn't have been circulated. That's a big question, and it's something people have a lot of questions about," he said.

Ward 12 Alderman and mayoral candidate Patrick Arnold has seized on the issue as part of his larger critique of the mayor's handling of economic development matters. He questioned the claim that the MDC was handling its own money..."We're still talking about taxpayer dollars and taxpayer property," Arnold said at Tuesday's meeting.

The "seed money" for the MDC accounts, as Owen explained, came from land deals many years ago, including the development of the airport and Millyard. The organization's revenues come from the interest on loan payments and investments...At one point during the debate, Owen acknowledged that the loan to XO was somewhat unusual, but he said it fit the MDC's broader mission. "We typically look for long-term investments, typically real estate, but it could also be a catalyst for economic development, and that incudes a downtown restaurant," he said...Owen, it bears mentioning, is the co-chair of the finance committee for Mayor Gatsas' reelection campaign.

While voting to support the loan, Alderman At-Large Dan O'Neil was dubious about the claim that the MDC was not required to seek the approval of the aldermen for such matters. "I think Bill Cashin would be jumping out of this chair," O'Neil said, referring to the former alderman, who was around when the MDC was organized in its current form in the mid-1980s."..O'Neil was right.

"I was shocked when I read the news," Cashin told me. "As far as I know, the purpose was never to bail out a restaurant. I think it's setting a bad precedent."

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Lost in all the debate over the loan is that XO On Elm is a pretty cool place. It has live music on the weekends and good food and drinks. The restaurant's owner, Rosa Paolini, and its general manager, Steven Thompson, reached out to me on Thursday to give their side of the story and explain why they sought additional financing...Thompson said, "We were looking to expand and open a new concept" - and that is to specialize in tapas, the Spanish tradition of delicacies served up on small plates. "The only tapas places in New Hampshire are in Portsmouth and Nashua. We're going to fly with it here. We needed new equipment, a new menu. It's an expensive project to undertake."..Paolini acknowledged that the restaurant had a tough winter, due in large part to the heavy snowfall.

"There were a lot of lost weekends," she said. "It affected everybody, every single restaurant. That left us with a short cash flow."..Paolini, a native of Italy, added, "We believe in Manchester. We love the city and people in the city. And we're grateful to the aldermen and the mayor . for believing in and supporting us."

As for critics of the loan, she said, "I'm disgusted how specific politicians used this to get publicity for themselves and tried to bring down a business in the city."..So does the mayor ever come in?

"Of course," Paolini said. "A lot of members of the city do. He takes prides in seeing us doing well and improving the city."

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Back to the budget. Aldermen Joyce Craig, Ward 1, and Pat Long, Ward 3, received a lot of props for their proposal that managed to send an additional $1 million to the school district, fund city severance and use a chunk of the sizable surplus to bring the tax rate below the tax cap limit...Here are the bottom-line numbers: $156.7 million for the schools, and $140.1 million for the city. Compared with the mayor's proposal, the tax rate for the city budget was 1.18 percent lower, while for the schools, it was 1.2 percent higher...The combined budgets will result in a 2.1 percent increase in the tax rate, or $22.65 per $1,000 of assessed value. That's $4,530 for a $200,000 house.

Perhaps it's the improving economy that should get the most credit for producing a larger-than-expected surplus...And there was more good news Tuesday. Tax Collector Pat Harte said in a letter that vehicle registrations were "incredibly strong" in May, up $100,000 from last year. She projected that registration fees would total $15 million for the fiscal year....

The sense that the city's financial well-being is improving may have contributed to the untimely death of a proposal to increase building permit fees. No sooner had the hikes made it out of committee than the aldermen rejected them at Tuesday's meeting...Under the proposal, plumbing permit fees would have been calculated as a percentage of the cost of a project, rather on a per-fixture basis, and the minimum charge for any permit that required an inspection would have gone from $10 to $50. As noted by Ward 10 Alderman Phil Greazzo, who proposed killing the fee hikes, this was a 500 percent increase. The motion passed on a unanimous voice vote....

City Hall's work is never done. The coming week will again be busy, with a full school board meeting Monday and a special meeting of the aldermen Tuesday.

And then Wednesday is the Mayor's Senior Luncheon. The event will take place at the downtown Radisson on June 12, from 12:30 to 3:30 p.m. This year's event has a tropical theme, so pull those Hawaiian shirts out of the closet...

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Ted Siefer may be reached at tsiefer@unionleader.com. Follow him on Twitter @tbsreporter...